Friday Could Get Ugly; Is The Bull Dead?

I remember sitting down in front of my TV on Tuesday February 27 as the clock hit 12:00pm out here in California – the start of the final hour of trading. 

And I remember the Dow just plunging – from down like 300 or so to being down more than 400 and then more than 500.  It was surreal: I could hardly believe what was happening.

Well today (Thursday) was another one of those days – the second worst day of the year for the Dow (after Feb. 27).  The Dow was down 387 points and the S&P 44.

BNP Paribas, Europe’s 6th largest bank by stock market value, suspended redemptions on three funds with exposure to US subprime mortgage backed securities because the market became so illiquid that they couldn’t even place a value on some of their holdings (subscription required).

This led to the European Central Bank injecting more than $130 billion into European money markets – more than the Federal Reserve injected into US money markets in the aftermath of 9/11.

The Federal Reserve injected $24 billion into the US banking system.

Japan’s central bank injected $8.39 million into money markets today (Japan is 16 hours ahead – they’re trading day just closed (11:00pm PST)) as the Nikkei sold off – it was down around 500 points, 3%, with 20 minutes left in the trading day.  Markets across Asia are selling off Friday.

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As if all this wasn’t enough, after the close Countrywide dropped another bomb in the 10Q it filed with the SEC.  Reduced demand from investors is forcing Countrywide to hold many more loans than it would like on it’s books – exposing it to potential defaults.

More than 20% of the $123.4 billion of “non-prime” mortgages serviced by Countrywide are more than 30 days late – up from about 15% a year ago.  About 4% of them are pending foreclosure – up from 2.5% a year ago (Table).

This will be on everybody’s mind when markets open for trading on Friday.

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The S&P 500 closed right on its 200 day moving average today (chart). 

As you can see from this 5 year chart, this is only the 5th time since the bull market really got underway in 2003 that the S&P has flirted with its 200 day moving average – and its never fallen too far below it.

Everybody’s wondering the same thing: Is the bull dead?